Foreigners Acquiring Real Estate in Turkey
The Turkish real estate sector has significantly improved, especially in the last decade, offering increasingly attractive opportunities for investors. While the negative effects of the recent economic crisis and global financial downturn are being felt in the European and US real estate markets, the Turkish real estate market is promising. Although a decrease in demand and consequently a drop in housing prices have been observed across Europe, according to data from the Turkish Statistical Institute (TÜİK), apartment sales in Turkey increased by 18% in the second quarter of 2011 compared to the same period of 2010. This indicates that Turkey’s real estate market has extraordinary growth potential.
The Turkish real estate sector offers significant opportunities to investors thanks to the changing population factors in parallel with the country’s developing economic figures. Increased commercial activity in the country’s industrial and transportation-intensive regions is leading to a rapid increase in the need for workplaces and housing.
If we examine the strengths and weaknesses of the Turkish real estate sector:
Strengths;
1) A robust banking system
2) The recently implemented mortgage loan system
3) The presence of strong, globally renowned construction companies
Weaknesses;
1) The high number of illegal and old houses unsuitable for mortgage loans
2) The limited quantity and high cost of suitable land, especially in Istanbul
If we examine the opportunities and threats in the sector;
Opportunities;
1) Growth potential arising from housing supply being lower than demand
2) Expected increase in housing quality in accordance with earthquake regulations
3) Increasing need for residential and office buildings
4) Urban reconstruction efforts leading to the demolition of slums and the construction of higher-quality housing in their place
Threats;
1) High earthquake risk, especially in Istanbul and the Marmara Region, which includes leading industrial areas of Turkey
2) The usual fluctuation trend in the sector
To briefly summarize the tax framework for investors;
1. Corporate Tax: 20% of net profit, including capital gains from real estate transactions and rental income.
2. Income Tax: Individuals earning rental income from real estate are liable for income tax at progressively increasing rates from 15% to 35%.
3. Value Added Tax (VAT): Rates range from 1%, 8%, to 18% depending on the type of product or service. Residences under 150m² are subject to 1% VAT, while all other real estate is subject to 18% VAT.
4. Real estate registration is subject to a title deed fee. This fee, payable by both the buyer and seller, is calculated as 1.5% of the acquisition or transfer price of the real estate. 5. Property tax: In 2009, the property tax was calculated based on registered values as follows: 0.1% for buildings used for residential purposes, 0.2% for other buildings (used as factories or offices), 0.1% for land, and 0.3% for construction sites.
FOREIGNERS ACQUIRING REAL ESTATE IN TURKEY UNDER THE LATEST LEGAL AMENDMENTS
Law No. 6302 Amending the Land Registry and Cadastre Law has made significant changes to the conditions required for foreigners to acquire real estate in Turkey. While the law, adopted on May 3, 2012, eases the conditions for foreign nationals wishing to acquire real estate in Turkey, some restrictions regarding countries bordering Turkey remain in place.
With this amendment, the law grants citizens of 183 countries the right to acquire real estate in Turkey “without requiring a reciprocity condition.” The high interest in real estate investment is the primary reason for this legal change, aiming to open Turkey to foreign investors.
The most notable change under the law is the removal of the reciprocity condition previously required for applications. In this way, even if a Turkish citizen cannot acquire real estate in the foreigner’s country of citizenship, the foreign individual will be able to acquire real estate in Turkey.
To explain the concept of reciprocity; the principle of reciprocity means that for a citizen of a state to enjoy certain rights in a foreign state, the citizens of that foreign state must also enjoy the same rights in the state of which the foreigner is a citizen. Reciprocity can stem from agreements (political), laws, or de facto practices between states. According to this principle, in cases where individuals are not granted the right to land ownership, and this applies to citizens of countries, it is essential that the rights granted by the foreign state to its own citizens regarding the acquisition of real estate are also granted to citizens of the Republic of Turkey. For example, if a state grants the right to own buildings to its own citizens and to Turkish citizens, the citizens of that state can only benefit from this right in Turkey, but cannot acquire land ownership.
If we examine the Land Registry Law, there are limitations on the amount of real estate that foreigners can acquire. Accordingly, the total area of real estate and limited real rights of an independent and permanent nature that foreign nationals can acquire cannot exceed 10% of the privately owned land area of the district and 30 hectares (300 acres) per person nationwide. However, the Council of Ministers is authorized to increase the 30 hectares that can be acquired per person nationwide by up to double. As a result of this regulation, a foreign national can acquire 60 hectares (600 acres) of real estate in Turkey with a decision of the Council of Ministers. Before the amendment, the total area of real estate that foreigners could acquire nationwide could not exceed 2.5 hectares (25,000 m2).
Furthermore, the acquisition of real estate in military zones is subject to the permission of the General Staff or the commands it authorizes; and in special security zones, it is subject to the permission of the governorships where the real estate is located.
Regarding the acquisition of real estate by commercial companies with legal personality established in foreign countries according to the laws of their own countries;
Article 35, paragraph 2 of the Land Registry Law states that commercial companies with legal personality established in foreign countries according to their own laws can only acquire immovable property and limited rights within the framework of special laws (Law No. 2634 on the Promotion of Tourism, Law No. 4737 on Industrial Zones, Law No. 6326 on Petroleum), and that limited real rights cannot be established in favor of commercial companies other than these, and they cannot acquire immovable property.
However, it is stated that the limitations in this article do not apply to the establishment of immovable property mortgages. In other words, immovable property mortgages can be established in favor of commercial companies with legal personality established in foreign countries according to their own laws and foreign nationals.
Regarding foreign-capital companies established in Turkey:
According to Article 36 of the Law, if the company established in Turkey has foreign capital; If a foreign national, foreign legal entity, or international organization owns 50% or more of the capital of a company established in Turkey, or has the right to appoint or dismiss the majority of its board members, that company may only acquire and use immovable property or limited real rights for the purpose of carrying out the business activities specified in its articles of association, even if the company isestablished in Turkey.
According to the same article, the same conditions apply if a company established in Turkey, whose capital is 50% or more owned by foreign nationals or legal entities, or whose board of directors has the right to appoint or dismiss its members, also owns 50% or more of the final share in another company established in Turkey. A final share of 50% or more can arise when foreign investors directly or indirectly acquire shares in a domestically owned company that owns real estate, or when, as a result of share transfers, the share of foreign investors in foreign-owned companies owning real estate reaches 50% or more. In other words, these companies can only acquire real estate ownership or limited real rights to carry out the business activities specified in their articles of association.
Cases in which the application will be rejected without any action being taken;
The cases in which the application will be rejected without any action being taken are specified in the Ministry of Environment and Urbanization’s circular number 1734. Accordingly; Except for foreign nationals and commercial companies with legal personality established in foreign countries according to their own laws, all legal entities (foundations, associations, cooperatives, societies, communities, etc., with or without legal personality) cannot acquire immovable property in Turkey or have limited real rights established in their favor. Therefore, requests related to this matter are directly rejected by the Land Registry Offices without any correspondence.
According to the same regulation, the acquisition of immovable property and limited real rights in Turkey by foreign nationals is limited to 30 hectares; therefore, acquisition requests exceeding this amount are directly rejected by the Land Registry Offices.
In cases where there are no structures on the land acquired by a foreigner:
Article 35 of the Land Registry Law stipulates that foreign nationals and commercial companies with legal personality established in foreign countries according to their own laws must submit the project they will develop on the undeveloped immovable property they have purchased to the relevant Ministry for approval within 2 years. Circular No. 1734 of the Ministry of Environment and Urbanization stipulates that if the approved project or the relevant document confirming the project’s approval is received by the Land Registry Office, a note will be made in the declarations section of the Land Registry record stating, “…Project approved by the Ministry of Environment and Urbanization. Date, Journal Entry.”
According to this circular, if no note is made regarding the approved project within two years, or if the project is not completed within two years, the Land Registry Offices will notify the local unit of the Ministry of Finance at the end of two years from the acquisition date for the liquidation of the immovable property or limited real right.
The general procedure to be followed by the Land Registry Offices for the acquisition of immovable property and limited real rights by foreign nationals, in accordance with Circular No. 1734 of the Ministry of Environment and Urbanization, is as follows:
Examination of the acquisition conditions in terms of the applicant’s nationality.
Inquiry into whether the immovable property in question is located in Military Restricted Areas, Military Security Zones, or strategic areas.
Obtaining the commitments specified in the circular regarding the limitations on 30 hectares
According to the relevant circular of the Ministry of Environment and Urbanization, the liquidation of immovable properties or real rights acquired in violation of the provisions of Article 35 of the Land Registry Law or used contrary to the purpose of acquisition except for legal necessity may also be considered.
Regarding those who were born Turkish citizens but lost their citizenship by obtaining a renunciation permit:
According to Circular No. 1734 of the Ministry of Environment and Urbanization, those who were born Turkish citizens but lost their citizenship by obtaining a renunciation permit, and their children involved in the same process, are exempt from the restrictions in Article 35 of the Land Registry Law. Thus, Turkish citizens residing in foreign countries, primarily Germany, and who have acquired citizenship of those countries are not subject to these restrictions. Their applications are processed by the Land Registry Offices.
In conclusion, with Articles 1 and 2 of Law No. 6302 on Amendments to the Land Registry and Cadastre Law, the principle of reciprocity, which had been in place in the Land Registry Law since 1934, was abolished, opening Turkish lands to the acquisition of property by citizens of 183 countries without any conditions, except for a 30-hectare limit.